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Pastimes : Ask Mohan about the Market

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To: Zeev Hed who wrote (6828)	11/2/1997 12:24:00 PM
From: tekgk	Read Replies (1) of 18056

While I agree with you that drawing parallels to 1929 without thought is dangerous, I believe that useful information and patterns can be found. I disagree that the Fed bungled in 1929 by not cutting interest rates and injecting liquidity into the market fast enough. They did both. Greenspan has commented positively on how this was done by Warburg on many occasions and has stated that he could not have done any better. T-bill rates were cut immediately by 2.5% as soon as the decline started. Over the next three years they were further slashed and eventually fell to just 0.25%. What more do you want? Negative interest rates? Massive liquidity was injected into the system through Fed purchases of the Treasury paper. All to no avail. The problem was that past sin's simply overwhelmed that Fed's ability correct. I am not contending that the same thing will happen now, only that it happened then and that is possible now (although unlikely). Al Greenspan himself has warned about the possibility of systemic failure on many occasions.

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